HARD RATIONING

Companies often face situations where they have too many projects to handle but do not have access to necessary funds to aid their completion. Therefore, the latter has to decide and select from among the existing projects, those that are most profitable and channel the available fund to the concluding them. This situation describes capital rationing to its best. One can therefore say thatcapital rationingis a method of rationing of available funds to projects that would yield maximum benefits at a time when it is most required. Fund constraints and too many incomplete projects at hand are some of the very basic deciding factors of rationing of capital.

There can be two types of rationing of capital. One issoft rationingand the other is hard rationing. May employ one or the other depending upon the financial situations they face at the time of rationing. The former (that is soft rationing) is more in tune with the decision of the authorities who are responsible for fund allocation within a company. They may or, may not want to allocate fund that is already in their possession to other sub divisions of the company to aid their incomplete projects or take on some newer ones. This can either be because of some real difficulties that the company may be facing owing to fund constraints and requirement of proper and well decided allocation towards more profitable projects or, because of their sheer unwillingness to part with valuable funds to divisionalised managements of the same company owing to lack of trust.

Hard rationingon the other hand is something that is very different from the former. This form of rationing is employed when the company has no internal influence on the matters. Hard rationing happens when external factors play a part in restricting the firm from taking up worthwhile opportunities. These external factors may involve government monetary restrictions, depressed economic conditions, drop in the stock market so on and so forth. Deficiency of adequate market information can also be considered an imperfection in the capital market leading all the way tohard rationing. Therefore, it can be said that while soft rationing is mostly the decision of the authorities responsible for such allocations, the authorities have no hand to play in hard rationing. The latter is solely a product of the external market conditions.

Both hard and soft rationing exist for a good cause. The fact is not unknown that companies loose millions through incomplete projects that are just hanging on unattended for the sake of it. Rationing allows clearing up on all these pending work that tends to clog the passage for more profitable projects to make their way into the company. Contrary to popular belief, rationing does not mean that the company is on the brink of loosing it all and nearing a closure sooner than expected. It is in fact, a boost to the company when its progress tends to slow down owing to some circumstance or the other.Hard rationing, though called for during tough times, tends to help the company to sail through the hardship rather than giving in to the drowning market scenario.

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